Saturday, November 09, 2013 10:40:03 AM
Confusion in Beijing's gold shops on price manipulation
Tom Chatham
Nov. 8, 2013
I received an email from someone who is Chinese with investments in Australia giving a view from the average person in China:
"Gold community in China is much different from western world. The customers are mostly old people (not discribed Chinese Dama [Bron - means middle aged married women]). Their only purpose is to preserve their savings (to against inflation) which earned by hard working of their whole life. When we go to Beijing's biggest gold shop and see some old couples sitting there, looking at gold price chart monitor with hopeless eyes (someone even have heart attack), we are filled with anger. Those good natured and hard working people, they don't chase equities or any kind of riskier investment, they buy gold for safety only. But now, the community is mostly hurted.
As for me, I only have a little gold less than 1% of my assets, but my very old father have a lot. He exchanged 25% of his savings to gold. When every week he met and ask me about gold's "cliff drop" and "volatility" and depressed several months, I can't explain to him exactly what happened. Chinese mainstream media are full of copies of wall streets comments and suggestions, I can't explain to my father clearly what is bullion bank's manipulation and I don't know how to make him happier. Such cases are numerous in China.
Bullion banks are not only making people suffer loss, but also destroying good faith and human logic. CMEgroup says Bullion banks' participation in gold/silver market is to "provide liquidity", but most of end buyers don't need such "liquidity" in the market. Bullion bank's trading is only for their own profit. Those "value-add" profit should belong to customer, miners and even you and your mint.
The problem come from huge naked short in thin time with no news in mid night electronic trading session or London fix, but sadly mid-night electronic session is afternoon in China, that triggers heard attack and depression of old people.
SGE already delivered 1782.997 metric ton in 2013 till October 25, about 15-20 times than Comex, we can't imagine why world price is controlled by a few of US banks."
Unfortnately it seems the average Chinese is no better informed than the average Westerner that we operate in a FIRE economy these days. That is why SGE's larger physical deliveries don't matter, as the ZIRP free money drives leveraged speculation in all markets, gold included. Simply the weight of this money in the gold market overwhelms the non-leverage money from the "good natured and hard working" just looking for safety.
So even if you got rid of fractional reserve banking, futures markets and manipulative trading tatics (which would help), you would still have this volatility as large investors could still borrow money at little cost and leverage up the little bit of their own money to buy a lot more gold. The consequence of that leverage is that it only takes a small change in price to threaten to wipe their capital out, resulting in quick and rushed liquidations back out.
And don't think that "China" is somehow not part of the problem. The same FIRE dynamic is in play in China as well, see this article or this on arbitrages using gold.
There was a great article out a few months ago called On the Phenomenon of Bullshit Jobs where he asks why predictions of a 15-hour work week never eventuated even though productivity increases could allow for it. He proposes that "rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions, and ideas, we have seen the ballooning" of bullshit jobs "as if someone were out there making up pointless jobs just for the sake of keeping us all working".
I propose a related phenonenom - that we are in a bullshit economy.
I am not confident that this is sustainable, which is why I have some gold insurance in my retirement savings account. All I can say to investors is to realise the bullshit FIRE dynamic that drives markets these days, be aware that this will result in large price swings, don't get all excited if we have a quick price rise as it could just be hot money that will flow out again, and remember gold is insurance to protect your wealth, not grow it.
I started reading commentary on the net about precious metals in 1998, when the The Perth Mint transferred me from Sydney to Perth to take up the position of Depository Administrator. In that time I have seen some intelligent writing but also a lot of stuff that could be described as emotional, misinformed, misguided, driven by hidden agendas or all of the above, and a fair bit by people who have never worked in the industry.
I hope to contribute some reasoned and reasonable commentary without the hype; expose anonymous agendas, factual faults and logic lapses; provide information on how the market actually works; give an insight into what goes on on the other side (of the trading desk); and most importantly, have a bit of fun (although I'll have to make sure my humour isn't too dry). This blog is really written for those Depository clients I got to know when I was Depository Administrator (you know who you are), which means it will only appeal to intelligent people, so if you are one of those, welcome. If your looking for sensationalism or personal attacks, look elsewhere.
I think it is important to disclose any potential "agendas" or commercial interests because while in theory one should be able to assess the validity of an argument independent of the writer, full disclosure helps the reader to be vigilant. That's why I mentioned The Perth Mint first up. I have worked there since 1994, except for one year with Australia's version of Wal-Mart – BigW – until gold's siren call drew me back (OK maybe it was the pay packet). In that time I've held a number of roles across all levels and I'm currently working on the redevelopment of the Mint's retail and exhibition business.
Having said that, this blog is not a Perth Mint mouthpiece and I will always strive for objectivity. All comments here are my personal opinion and not endorsed by the Mint in any way. And I'm not going to be answering specific question about the Mint's business - if you have a problem with them or a question for them, ask them directly yourself. However, I am happy to answer general questions readers may have. If you think that is a cop out, well I don't want to test the confidentiality provisions of my employment contract or be a test case on what Section 74 of the Gold Corporation Act 1987 covers. As I work at the Mint no one is probably going to believe what I say about it anyway. This is a blog, not a newsletter, and I'm doing it on my time, not the Mint's time, so I'm not taking any risks.
Finally, while this blog is not about giving you my opinion about where the gold price is going (there are plenty of those out there), I probably won't be able to stop myself from commenting on the market from time to time. In that case, note the following disclaimer - this blog is not giving investment advice and should not be relied upon at all! I mean, if what I had to say on the gold price was worthwhile, why would I be here writing this blog instead of sunning myself in some exotic location from all my trading profits?
Legal: of course I claim/retain copyright on any material published in this blog (as if it is worth much) but am happy for it to be quoted or republished as long as it is credited/linked back to this blog.
goldchat.blogspot.com
http://www.silverbearcafe.com/private/11.13/confusion.html
Tom Chatham
Nov. 8, 2013
I received an email from someone who is Chinese with investments in Australia giving a view from the average person in China:
"Gold community in China is much different from western world. The customers are mostly old people (not discribed Chinese Dama [Bron - means middle aged married women]). Their only purpose is to preserve their savings (to against inflation) which earned by hard working of their whole life. When we go to Beijing's biggest gold shop and see some old couples sitting there, looking at gold price chart monitor with hopeless eyes (someone even have heart attack), we are filled with anger. Those good natured and hard working people, they don't chase equities or any kind of riskier investment, they buy gold for safety only. But now, the community is mostly hurted.
As for me, I only have a little gold less than 1% of my assets, but my very old father have a lot. He exchanged 25% of his savings to gold. When every week he met and ask me about gold's "cliff drop" and "volatility" and depressed several months, I can't explain to him exactly what happened. Chinese mainstream media are full of copies of wall streets comments and suggestions, I can't explain to my father clearly what is bullion bank's manipulation and I don't know how to make him happier. Such cases are numerous in China.
Bullion banks are not only making people suffer loss, but also destroying good faith and human logic. CMEgroup says Bullion banks' participation in gold/silver market is to "provide liquidity", but most of end buyers don't need such "liquidity" in the market. Bullion bank's trading is only for their own profit. Those "value-add" profit should belong to customer, miners and even you and your mint.
The problem come from huge naked short in thin time with no news in mid night electronic trading session or London fix, but sadly mid-night electronic session is afternoon in China, that triggers heard attack and depression of old people.
SGE already delivered 1782.997 metric ton in 2013 till October 25, about 15-20 times than Comex, we can't imagine why world price is controlled by a few of US banks."
Unfortnately it seems the average Chinese is no better informed than the average Westerner that we operate in a FIRE economy these days. That is why SGE's larger physical deliveries don't matter, as the ZIRP free money drives leveraged speculation in all markets, gold included. Simply the weight of this money in the gold market overwhelms the non-leverage money from the "good natured and hard working" just looking for safety.
So even if you got rid of fractional reserve banking, futures markets and manipulative trading tatics (which would help), you would still have this volatility as large investors could still borrow money at little cost and leverage up the little bit of their own money to buy a lot more gold. The consequence of that leverage is that it only takes a small change in price to threaten to wipe their capital out, resulting in quick and rushed liquidations back out.
And don't think that "China" is somehow not part of the problem. The same FIRE dynamic is in play in China as well, see this article or this on arbitrages using gold.
There was a great article out a few months ago called On the Phenomenon of Bullshit Jobs where he asks why predictions of a 15-hour work week never eventuated even though productivity increases could allow for it. He proposes that "rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions, and ideas, we have seen the ballooning" of bullshit jobs "as if someone were out there making up pointless jobs just for the sake of keeping us all working".
I propose a related phenonenom - that we are in a bullshit economy.
I am not confident that this is sustainable, which is why I have some gold insurance in my retirement savings account. All I can say to investors is to realise the bullshit FIRE dynamic that drives markets these days, be aware that this will result in large price swings, don't get all excited if we have a quick price rise as it could just be hot money that will flow out again, and remember gold is insurance to protect your wealth, not grow it.
I started reading commentary on the net about precious metals in 1998, when the The Perth Mint transferred me from Sydney to Perth to take up the position of Depository Administrator. In that time I have seen some intelligent writing but also a lot of stuff that could be described as emotional, misinformed, misguided, driven by hidden agendas or all of the above, and a fair bit by people who have never worked in the industry.
I hope to contribute some reasoned and reasonable commentary without the hype; expose anonymous agendas, factual faults and logic lapses; provide information on how the market actually works; give an insight into what goes on on the other side (of the trading desk); and most importantly, have a bit of fun (although I'll have to make sure my humour isn't too dry). This blog is really written for those Depository clients I got to know when I was Depository Administrator (you know who you are), which means it will only appeal to intelligent people, so if you are one of those, welcome. If your looking for sensationalism or personal attacks, look elsewhere.
I think it is important to disclose any potential "agendas" or commercial interests because while in theory one should be able to assess the validity of an argument independent of the writer, full disclosure helps the reader to be vigilant. That's why I mentioned The Perth Mint first up. I have worked there since 1994, except for one year with Australia's version of Wal-Mart – BigW – until gold's siren call drew me back (OK maybe it was the pay packet). In that time I've held a number of roles across all levels and I'm currently working on the redevelopment of the Mint's retail and exhibition business.
Having said that, this blog is not a Perth Mint mouthpiece and I will always strive for objectivity. All comments here are my personal opinion and not endorsed by the Mint in any way. And I'm not going to be answering specific question about the Mint's business - if you have a problem with them or a question for them, ask them directly yourself. However, I am happy to answer general questions readers may have. If you think that is a cop out, well I don't want to test the confidentiality provisions of my employment contract or be a test case on what Section 74 of the Gold Corporation Act 1987 covers. As I work at the Mint no one is probably going to believe what I say about it anyway. This is a blog, not a newsletter, and I'm doing it on my time, not the Mint's time, so I'm not taking any risks.
Finally, while this blog is not about giving you my opinion about where the gold price is going (there are plenty of those out there), I probably won't be able to stop myself from commenting on the market from time to time. In that case, note the following disclaimer - this blog is not giving investment advice and should not be relied upon at all! I mean, if what I had to say on the gold price was worthwhile, why would I be here writing this blog instead of sunning myself in some exotic location from all my trading profits?
Legal: of course I claim/retain copyright on any material published in this blog (as if it is worth much) but am happy for it to be quoted or republished as long as it is credited/linked back to this blog.
goldchat.blogspot.com
http://www.silverbearcafe.com/private/11.13/confusion.html
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